Case Law Summaries

One Step Up, Ltd. v. Sam Logistic, Inc.

WAREHOUSEMAN; TITLE — A warehouseman, as a bailee, is obligated to transfer possession of bailed goods to a rightful claimant who presents a document of title and a letter of instructions could constitute a document of title because New Jersey law permits flexibility regarding the issue, form or content of a document of title.

An importer and distributor of apparel and a seller of apparel had a business relationship under which all goods the distributor purchased were automatically delivered to a certain public warehouse. Thereafter, the seller would notify the warehouse, usually by letter, of the transfer in ownership to the importer and distributor, and upon the importer and distributor’s request, the warehouse would release goods from its warehouse to the importer/distributor or directly to the importer and distributor’s customers. According to one of the importer and distributor’s employees, the parties had passed thousands of cartons, worth millions of dollars, through this arrangement without incident, and the warehouse had never required authorization from the seller to release merchandise.

During one transaction, the seller provided the importer and distributor with a letter stating that certain goods had been sold to it and could be picked up right away; the warehouse would not charge handling fees; and, although owned by a third party, the goods would belong to the importer and distributor until removed from the warehouse. The importer and distributor faxed the letter to the warehouse, which released some of the goods to the importer and distributor. According to an employee of the importer and distributor, the warehouse released the goods pursuant to a verbal agreement following receipt of the letter from the importer and distributor. However, the owner of the warehouse testified that the goods had been released only upon the signature of the seller’s principal.

The importer and distributor then requested that the warehouse release additional goods, but the warehouse refused, telling the importer and distributor to contact the seller. According to the warehouse’s principal, he refused to release the goods because he had not received a signed release from the seller. However, he admitted knowing that the goods sought by the importer and distributor had actually been sold by the original seller to other parties. The importer and distributor’s counsel wrote to the warehouse’s principal, demanding release of the goods. The warehouse’s principal replied the same day, stating that the goods were still owned by the seller and would only be released with the seller’s written consent. It was then that the importer and distributor discovered that the goods already had been removed from the warehouse. At trial, the warehouse’s principal admitted that the warehouse had released the goods to other customers of the seller on the seller’s orders, notwithstanding the letter confirming that the goods had already been sold to the importer and distributor.

The importer and distributor sued the warehouse, the warehouse’s principal, the seller, and the seller’s principal for the value of the lost goods. Pursuant to a partial settlement agreement, the warehouse released the remaining goods to the importer and distributor, and the importer and distributor withdrew its claims against the seller and the seller’s principal in exchange for payment. However, the conversion claims against the warehouse and warehouse’s principal continued. At trial, the lower court heard testimony from an employee of the importer/distributor and from the warehouse’s principal. The warehouse and the warehouse’s principal argued that the importer and distributor had failed to provide the warehouse with a valid document of title to the goods; and that, without a valid title document or written authorization from the seller, the warehouse had no obligation to release the goods. They also argued that the importer and distributor waived any potential claim against the warehouse and the warehouse’s principal by settling with the seller and seller’s principal. The lower court rejected all of those arguments, finding it clear that the letter between the parties was intended to memorialize the sale of the stored goods to the importer and distributor. It called the warehouse’s insistence on a release order a red herring in light of the parties’ extensive previous dealings.

The warehouse and the warehouse’s principal also argued that because the contract between the importer/distributor and the seller was cancelled, the importer and distributor was no longer the rightful owner of the goods. Additionally, they argued that they could not be liable for conversion because the goods were delivered to other buyers, in good faith, pursuant to a bill of landing. The Court observed that a warehouseman, as a bailee, is obliged to transfer possession of bailed goods to a rightful claimant who presents a document of title. Thus, it rejected that argument, and agreed with the lower court that the letter between the parties constituted a document of title under state law because the law permits flexibility regarding the issue, form or content of a document of title.

The Court observed that a party need not knowingly or intentionally act wrongfully for a conversion to occur. But, when more than one person claims title to bailed goods, a bailee is required to conduct due diligence. Here, when the warehouse was notified of an adverse claim, it failed to do so. In affirming, the Court found that, given the warehouse’s knowledge of the importer/distributor’s claim, it was clear that it had not held the goods in good faith.